TheCannalysts have spent a fair bit of time on Auxly, and view their business as somewhat unique in the sector.
Unlike say, a pure production company, or an extractor, or branded product creator…..Auxly has a range of interests across the value chain, including many JV’s, investments, and partnerships.
Unlike the buy and conquer’ approach the CGC’s and ACB’s of the world have taken, this company has more of a ‘collaborative’ stance (for lack of a better word) in positioning. Like others, they have an active lending and investing portfolio – but it (generally) trends to smaller positions/exposures, and on-boarding appears largely strategic.
Caught up on our previous coverage? Cool. Let’s see how they’ve been doing since last time.
To the financials!
- Cash position looks great at $186MM. But. If one totals investment obligations and restrictions around it, we discover that some $150MM of it is spoken for.
- Inventory is accumulating significantly, growing from $15MM to $48MM QoQ. Finished Goods is $123k of that $48MM.
- And yep, Dosecann’s probably extracting like they’ve never extracted before.
- Inverell’s inventory contribution (their subsidiary in Uruguay) was impaired by a $1MM, and wrote down an additional $200k on quality. No mention of the total biomass it was applied against, although they are talking about enhanced genetics.
- As predicted, SBC has doubled from previous run rates and is $5.4MM this quarter. It’ll get smoked next quarter too.
- Revenues from ‘research contracts’ reported at $1.5MM, sales of dope $100k. Improvement on research, but margin on it is essentially nil
- G&A up to $16MM this quarter, up from $11MM last. Natch. Builds roll that way.
- 20MM options at $0.34, 5 years to go on those bad boys. Another 14MM in warrants at $0.023, expiring before the moment you read this. Christmas bonus’ all around.
- This will bootstrap the share price to some degree. And the price shareholders pay for their existence.
- 25% of total assets in Intangibles and Goodwill. Relative to sector, not too hot, not too cold. I wouldn’t call it ‘just right’ though.
I could remark more, but really, they haven’t operationalized.
Despite Auxly having a relatively diversified portfolio in-sector, it doesn’t inure them from bumps in the road. As predicted last structure, they’ve taken a $5.7MM lump on a loan to Beleave, and initiated legal action against them.
[As an aside, In the small world of legal cannabis, Jeanette VanderMarel has (curiously) taken on the CEO role at Beleave, and was also elevated to the Board. Interesting move by her, given Beleave’s recent mention in being around some <ahem> sketchy activity . Given they had $500k in cash as of March 31st fins, umm, yeah. I wonder what she’s intending to do, and if she sees something in it that’s salvageable. The auditors seem to doubt there is, and they say so clearly in Note 1 of Beleave’s fins.]
A $7MM loan to Sundial (at a breathtaking 24%) was satiated. Ka-ching. $1.9MM made on an 11 month loan.
I mentioned Auxly’s accounting around L-T Investments last time – it’s all reported from the last fiscal year end. Being invested in this sector hasn’t been kind to many over the past little while, and Auxly is no exception, seeing them drop some $7MM in portfolio value over the 3 month reporting period. We also find out they shed most of any investment in VIVO they held.
A forced conversion of convertibles was done in late October, with laggards getting the pointy end of the stick, whether they wanted it or not.
Well, that’s about it. The reader might note that this contains mainly observational information. That’s because Auxly isn’t really doing anything. Yet. They are still in formation, and have yet to begin operationalizing.
Current thinking is that folks this late to market are either a) too late to the party, or b) running out of cash. For the most part, they’d be right. With Auxly, they’ve set their sights on this timing, and appear to have planned for it quite well. Neither of those assumptions applies here for the moment.
From the financials I’ve looked at, I am impressed at how much of a dealmaker Chuck Rifici is, and suspect Hugo was hand-picked and hand-crafted.. The rabble on the bullboards is generally silly – and disconnected from the business model. One suspects many invested in this have no idea the exposures they hold.
The capital structure is top-heavy. No two ways about it.
I am in a state of total ambivalence towards Auxly in terms of investing. Utter, and complete. They had built a longer range target than most from the get-go (ignoring that ‘streaming’ phase they were in‘. Since then, they have stayed on target, without much deviation from it.
As a finance guy, I like their story, their dealmaking, and their relative sophistication of how it’s been put together. I view them as smart people doing smart things to get into a position to let those smarts shine.
Now? They are almost there, all they have to do is sell dope. Simple, right?
The next 3 quarters will lay it all out if they can do it, and if their model is viable. In my eyes, ‘distribution’ is the focal point for this company – to the exclusion of almost everything else.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $XLY